PayPal and Pinterest – Super Distraction?
What’s behind this deal?
- Increase users and platform engagement (MAU)
- Grow the merchant value proposition
- Get into the START of a consumer shopping experience
- Enable a new mobile first shopping experience – focused on small merchants – from beginning to end (like Alipay)
- “Inspiration to Action” – They are missing the action beyond a ad click.
- Stalled user growth
- 50%+ Revenue growth with consistent operating loss.
- 454M Users with ARPU of $5.08/User vs PayPal’s $21/User
- Ad Growth to Action. Advertising business with solid advertising relationships with CPGs and large retailers. However you don’t click to buy from a CPG.
- Needs platform to complete consumer journey.
If PayPal wanted to build an AliPay in the US where would it start?
My answer? Adding value to small merchants and engaging consumers in new ways. This tie up could certainly fit this goal. However, the financial metrics, Pinterest valuation, user demographic intersection and path to action don’t line up.
Can PINTEREST pivot from Inspiration to Ad Click to a new world of purchase action? Pinterest hasn’t been able to do this organically. Remember most of the Pins are not from small businesses, but from individuals creating their own designs. If Pinterest became more marketplace oriented, it may lose the following of the core base that has enabled the sharing of ideas.
Organizationally PayPal has been challenged to grow beyond the “buy” button. Efforts associated with PayPal’s SuperApp/Neo Bank were just starting to bring the organization together in a new consumer facing interface. Pinterest would pull exec attention in a completely new direction, together with their other previous acquisitions of Honey, Xoom, iZettle, …etc.
Given that PayPal announces earnings next week, I do as the “why now”? question. While PayPal experienced 5-10 yrs of normal growth in the 18 months of COVID, it is expected to start leveling out, and they may miss guidance on user growth. But on the flip side Pinterest’s user growth is flat to negative, so an acquisition could not be to stimulate MAU growth (given both are flattening out)
Is the Pinterest model of consumer engagement mature/holistic enough to form a foundation for a future commerce business?. Perhaps but at what price? It is not a proven model of end-end.
$40B for 360M active users is a tad rich at $111/user.. but if you discounted Pinterests user base to account for users under 25 (15%) the cost per user could $128/user. Given an ARPU of $5.08/yr (Operating at a loss) that is 25yrs of consumer revenue.
Speaking of discounts, PayPal should probably discount Pinterest’s CPG advertising revenue, as consumers do not “take action” and buy these products online (ie think P&G, and Cosmetics). They may also want to discount retailer ad spend, as most major retailers advertising on the Pinterest platform do not take PayPal at checkout. Talk about a lack of synergy: neither of Pinterest’s largest advertising groups (Large retailers, CPGs) use PayPal AND most Pinners are NOT merchants.
Obviously buying a company 1/5th of your market cap requires a very solid plan on how Pinterest enables a new consumer experience from beginning to end. I’ve been in the both the payments business and the advertising business. I don’t see it. If it were April 1st I would have a better job explaining the rumor.